The random walk hypothesis and the recent behaviour of equity prices in Britain

G Kemp, Alex and Reid, Gavin (1971) The random walk hypothesis and the recent behaviour of equity prices in Britain. Economica, 38 (149). pp. 28-51. ISSN 1468-0335

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Abstract

This paper is concerned with one of the most illustrious hypotheses examined under the second approach, namely the random walk hypothesis.[3] This hypothesis postulates that the changes in share prices are independent, and hence produce a random walk in price levels. Over time, however, the relative frequency of outcomes is stable. An elaboration of the hypothesis is given in the next section of this article. Recent writers have analyzed not only share price movements but also other speculative price series such as those of commodity prices. Though no universal agreement regarding the validity of the random walk hypothesis as applied to share prices has resulted from these studies, there is a surprising dearth of instances in which it has been refuted unambiguously. Thus, as Rayner has put it, the random walk hypothesis is "in the ascendant".